If you’re thinking about remodeling your home, you might be wondering, “How do home renovation loans work?” The first thing you need to know is that renovation financing requires a down payment of 5% of the home’s value. The down payment is determined based on what the home will be worth after improvements. For example, if the home is originally priced at $150k, you would need to spend $12k on improvements to increase its value to $168k.
A home equity line of credit (HELOC) gives you the flexibility to renovate the space at a lower interest rate than a personal loan. HELOCs come with fixed monthly payments and are preferred by homeowners with equity in their home. The downside is that you must pay the origination and closing costs, which can add up quickly. However, the benefits of this type of loan make it well worth considering if you already have a renovation budget.
The amount of savings you need depends on the scope of your renovation project and the value of your home. Starting with a less expensive renovation will help you build up savings. It is also better to start small and not overspend. After all, no one wants to be burdened with a big credit card bill at the end of the project. You will be able to get a home renovation loan if you can prove that you can afford it.
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